You can’t predict the future, but you can plan for it.

We are now in the second half of 2011 and business owners are beginning to look ahead to how they will close the year. Uncertainty levels remain high as financial markets react to deficit spending, credit downgrades, unemployment and a weakening U.S. economy. In an environment plagued with uncertainty, it is especially critical to stay focused on those items that drive the greatest levels of customer and business value.

Preparing a great budget for 2012 is an excellent way to clarify goals and keep your team focused on business objectives. In this article, I’ve included some tips for preparing a great budget for your business.

Start with your view of the future – A great budget starts with a realistic assessment of the market, the relative positioning of your products and services and identifying factors that could materially impact your ability to meet your objectives.

Exercise your business – Your final budget may be represented by a set of financial statements, department budgets and sales plans, but your budget process should also include financial modeling of your business under different scenarios. Exercising your business by evaluating and modeling alternative scenarios can improve your ability to respond to opportunities and challenges.

Prepare an operational budget – A great budget is driven by strategy, geared towards successful execution of your objectives. Your budget should always be owned by your operating executives and never by the accounting function. The budget should be a compilation of firm commitments from your management team and used as a tool to drive accountability.

Stretch your business – A great budget starts with objectives that are achievable but require innovation, leadership, continuous improvement and success in capitalizing on market opportunities.

Give your budget a memory – A great budget should include financial returns for investments you have made. Business cases prepared prior to the approval of the investment are a great source for this type of information.

Think activities and rates rather than amounts – A great budget is zero based and requires on-going justification of resources. Providing goods and services to customers drives activities that result in cost. For each category of cost, analyze the underlying activity and the cost incurred each time the activity is performed. Set improvement objectives to decrease both the level of activity and the associated cost incurred when the activity is performed.

Decide and commit – A great budget has adequate review by senior management to ensure that operational commitments have been made, that objectives require stretch but are achievable, that priorities are adequately funded with appropriate trade-offs identified and that the tough decisions have been made.

You are what you measure – A great budget incorporates quantified market and operational objectives to supplement financial objectives. If you use key performance indicators to measure aspects of business performance, be sure to establish goals for these metrics and tie them to your financial objectives.

Communicate and align – A great budget aligns the goals of every department with your strategy and business objectives. Develop financial and operational metrics to support top-level business objectives and establish supporting department metrics and objectives that cascade throughout the organization.

A great budget doesn’t just sit in a binder in the CFO’s office gathering dust. It is used throughout the year as a tool for communicating priorities, making decisions and measuring performance.

Does your business need help with building a budget that clarifies your goals and financial objectives? If you need help in developing your budget, establishing relevant metrics, improving your financial reporting or finding cash for your business, please send me an e-mail or call me at 480-433-1310. I would enjoy helping you prepare your business to succeed in 2012.

NOTICE: B2B CFO Partners, LLC, dba B2B CFO is an Arizona limited liability company that provides advisory and consulting services. B2B CFO® partners are independent contractors and are not officers, employees or agents of, or partners or joint ventures with, the companies they serve, nor are they independent CPAs.